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Ex-Chancellors: stop recession becoming a depression

9 June 2020: Parliamentary watchers were treated to the unusual sight of three former chancellors lined up for a grilling in front of a virtual Treasury Select Committee, as MPs sought insight on the post-COVID economy.

The trio of Alistair Darling, George Osborne and Philip Hammond were all quizzed about their views on the scale and depth of the current coronavirus-driven crisis and how they thought it compared to the most recent recession of 2008-2009.

Lord Darling, the former Labour chancellor, who held the post between 2007-2010 during Gordon Brown’s stint as Prime Minister, said the two crises were “very different” to our current situation, and “much more serious” than the financial crash of 12 years ago.

"The key difference between then and now is that from day one, the government wanted to get the economy going again, and therefore we introduced a range of measures, which enabled us to do that.

"The situation today is different, in that it is part of government policy right across the world, and rightly so, to actually suppress economic activity through the lockdown and other measures.”

He stressed that “unless and until the government gets control of the virus itself and the spread of the virus”, it was “difficult to see how you can pull out the stops and get the economy going again."

1980s levels of unemployment

Darling said the country should also prepare itself to “get ourselves into the frame of mind where we’re thinking about 1980s levels of unemployment.”

During much of the early to mid-’80s, British unemployment hovered around the 7-10% mark as Margaret Thatcher’s Conservative government pursued a policy of rapid deindustrialisation.

George Osborne said there will be “many people in businesses who have gone bust that aren’t going to return, and people who are coming off furloughs into unemployment.”

Such a scenario would present “a big social challenge, and of course economic challenge, for this government”.

Meanwhile, Philip Hammond suggested it was too early to predict which crisis will be the worst because “a lot is going to depend on whether over the next months it becomes clear that we are heading towards either a vaccine or not” and whether the country will “have to plan in terms of restarting the economy living with COVID-19."

Darling warned that the government will need to introduce measures to deal with a wave of unemployment, likely to be triggered when the furlough schemes, currently supporting 8.2 million people, begin to be phased out in late summer and end completely in October.

For those that do lose their jobs, they must be “brought back into work as quickly as possible”, stressed Darling.

And he cautioned that it was imperative the government did not sit idly by so that “you don't end up with a recession becoming a depression."

“No economic logic to increasing taxes in the short term”

Darling advised implementing a time-limited VAT reduction to boost the economy, while Hammond said there was “no economic logic to increasing taxes in the short term”, instead focusing on the fact that “the UK is a credit-worthy, mature, larger economy” that “can carry more debt in the context of the short-term crisis”. 

"Of course, we have to remember that debt is cumulative by its nature,” continued Hammond. “We increased debt very substantially during the course of dealing with the last crisis, and we'd only just got back to the point where we were starting to see debt very slightly decline as a share of GDP. Now we're going to see it increase significantly again as a share of GDP, so eventually we have to think about how we manage the challenge of debt in the long term."

This week it emerged that the Bank of England's Corporate Covid Financing Facility (CCFF) scheme had lent £600m to both Ryanair and EasyJet while British Airways and Wizz Air took £300m each.

That news is likely to create controversy, given the fact BA has plans to make 12,000 staff redundant, while Ryanair has said it will axe 3,000 jobs and 4,500 positions are tipped to be lost at EasyJet - something not lost on the ex-chancellors.

Discussing the issue of the “large stakes we're going to take in large companies like airlines, potentially, and aerospace manufacturers,” Osborne said all three former chancellors “have experience … of pretending that you're managing these bank holdings that we had in the last decade at arm's length, and still when Treasury questions came up we were being asked about the bonuses being paid to chief executives, why branches were being closed in the constituencies of members.”

The current editor of the London Evening Standard added that he “could imagine an airline saying it wants to shut an uneconomic route to one of the further-flung parts of the UK” which he thinks will “be more problematic than I think people have realised at the moment”.

Darling’s take was that the UK’s view of its national flag-carrying airline was different to that of France or Germany “but I think most people would take the view that we've got to ensure that we've got a transport industry.”